When building repairs reach a certain level of cost or complexity, they become capital renewal projects, sometimes called deferred maintenance. That’s when a backlog can occur.
In this installment of The Well’s Behind the Numbers series of stories, we explain the University’s more than $850 million in deferred maintenance, primarily in academic and administrative buildings.
America’s oldest public university — with the oldest state university building in the nation and the only public university to confer degrees in the 18th century — is cherished for its historic beauty and sought after for the world-class education it provides students. The storied buildings require upkeep, as do all of the campus facilities. And teaching and research needs evolve.
Carolina’s campus and its buildings are expertly cared for by skilled employees and contractors, who bring expertise in maintenance and systems repair. When repairs reach a certain level of cost or complexity, they become capital renewal projects, sometimes called deferred maintenance. That’s when a backlog can occur.
The Well’s Behind the Numbers series sheds light on the University’s financial situation, how various financial buckets fit together and what policies guide decision-making. Our series includes an overview of Carolina’s finances, a look at revenue and expenses, as well as an update on the Campaign for Carolina.
Carolina has more than $850 million in deferred maintenance and that number is growing for repairs needed in and around the University’s more than 185 state-supported buildings in Chapel Hill, across the state and throughout the world.
Just what is deferred maintenance?
“The concept of deferred maintenance is a misnomer,” said Abbas Piran, director, facilities technology group. “It gives the impression that the University is deferring maintenance. At Carolina, we do a very good job in maintaining and operating our buildings on a day-to-day basis.”
Piran prefers the term capital renewal.
Capital renewal is replacing or renewing a building or a building system that is at the end of its useful life cycle and is no longer performing at the level to meet the academic and research priorities of the University, he explained.
To understand the concept, University Architect Evan Yassky compared it to the smoke detectors in a house. Batteries must be replaced on a regular basis, but at some point the smoke detector wears out and needs replacing. “It’s easy to keep deferring that.”
Similarly, a small leak in a roof can cause secondary damage to other parts of a building. Even after repeated patching, at some point, the roof has to be replaced.
“That’s what we face on campus, just on a much larger scale,” Yassky said.
“Every dollar that is delayed for capital renewal will cost us approximately $4 in the future to address this issue,” Piran said.
Regular maintenance vs. capital renewal
The University’s maintenance shops handle repairs on projects that generally cost $5,000 or less, Yassky said. Projects that cost between $5,000 and $100,000 may be funded by Facilities Services or in some cases by schools, units or departments. State appropriated repair and renovation funding focuses on projects that cost more than $100,000.
Carolina’s senior leaders, including Chancellor Kevin M. Guskiewicz and Vice Chancellor for Finance and Operations Nate Knuffman, help to set the strategic priorities by reviewing the list of capital renewal projects. That list is then submitted to the University of North Carolina System Office and its Board of Governors.
To create the list of priorities, Carolina’s in-house architects and engineers track the condition of all building systems for renewal through the Facilities Condition Assessment Program (FCAP). They inspect, capture and catalog information about the current state of the University’s physical assets.
Working in collaboration with departments in Facilities Services, the FCAP team develops long- and short-term plans for capital renewal projects.
As of May 19, the University has 2,920 individual projects on the list at an estimated cost of $898 million across buildings and infrastructure spanning more than 11 million square feet of state-supported facilities.
Heating, ventilation and air conditioning projects make up 32% of the list, followed by 27% for architecture, including exterior and interior construction and roofing. Electrical projects account for 11%. Plumbing projects, infrastructure and fire protection each account for 7% of the total.
On an annual basis, Facilities Services determines the most pressing needs for the year, prioritizing life-safety issues such as fire alarm and ventilation systems. With a prioritized list of projects, Facilities Services works closely with senior administrators to decide projects and timelines.
Those needs are matched with available funding. Carolina has received generous funding from the North Carolina General Assembly overall compared to other public universities.
Capital renewal is a topic widely discussed among facilities professionals across both public and private institutions. Many public universities share similar issues of aging buildings, a backlog of deferred maintenance projects and more projects than funds. Yassky suggests Carolina falls in the middle, with many schools having more needs and others that have fewer projects. “Many university facilities people are talking about this issue,” he said.
At Carolina, 89% of the University’s square footage was built after World War II, Yassky said. Buildings constructed in the 1960s and ’70s are the ones that perform the least well, and people tend not to like the architecture of that period. “Campuses will knock down those buildings before they’ll knock down a building from 1920,” he said.
One project has been on the list since 2003: replacing the HVAC system in Hamilton Hall, a six-story building that houses the College of Arts & Sciences departments of archaeology; history; peace, war and defense; political science; and sociology. Initially the project was estimated to cost $3.8 million plus an additional $1.3 million for asbestos removal. Because of the lack of capital renewal funding, the project is now slated to cost $4.8 million plus $3.2 million to remove the asbestos, a 60% cost increase. The 85,000-square-foot building, which hasn’t been renovated since it was built in 1972, is home to 11 classrooms and 181 offices.
The most expensive single project on the list at $14.6 million is replacing the HVAC system in Phillips Hall, which houses the College’s departments of math, physics and astronomy. Opened in 1919, with additions to the building constructed in the 1920s and 1960, the building has 164 offices and 21 classrooms, including five class labs, on six floors with more than 1,709 workstations. Some parts of the building’s current HVAC system date back to when the additional wings were constructed.
Not only will the HVAC system be replaced, but the work will address other deficiencies in classrooms, including workstations, updating building finishes and technology to ensure the building is meeting the needs of programs housed in it.
A comprehensive renovation project currently underway is Carrington Hall, which houses the School of Nursing and has been on the short list for renovation since 2006, when its electrical, HVAC, plumbing and roofing were deemed “beyond useful life,” according to state inspectors.
This renewal project received $45 million in appropriations from the General Assembly in July 2020 and is scheduled to break ground in January 2023. The General Assembly also appropriated $2.5 million in planning money for fiscal year 2021, with an additional $2.5 million should the federal government give the state flexibility to use the CARES Act funding for this purpose.
Carrington was built in 1969, and an addition to the building was completed in 2005. Renovations to two ground floor classrooms were completed recently. Within the building’s 153,000 square feet, there are 14 classrooms and 15 class labs, with 256 offices and 1,717 workstations on eight floors, including a basement and subbasement. Since the building was constructed, health care has seen tremendous advances in medical technology and teaching techniques, requiring updates to ensure the school maintains its mission.
Bingham Hall, built in 1929, is also set for a comprehensive renovation if funding is secured. The four-story, 26,000-square-foot building, which is no longer occupied, has eight classrooms, one class lab, 32 offices and 520 workstations. Occupants of Bingham Hall have already been relocated to other locations on campus.
How did we get here?
The University receives funds from two sources for building maintenance: funds from the General Assembly based on a fixed formula and discretionary funds from special state appropriations.
The state also funds the UNC System’s 16 other institutions, including capital renewal projects.
UNC-Chapel Hill receives a share of the UNC System appropriation based on an allocation model approved by the Board of Governors. Addressing Carolina’s $850 million plus backlog and future needs requires consistent funding. An annual investment of $40 million would begin to reduce the existing backlog.
Resolving deferred maintenance issues is central to the Campus Master Plan that was adopted in 2019, Yassky said. The master plan allows the University to look holistically at all of the issues facing the physical campus and how the space plays into helping Carolina achieve its mission.
Putting off capital renewal projects can sometimes impact operations, either by rendering buildings that may be central to the University’s mission unusable or by forcing emergency repairs. Emergencies require unscheduled shutdowns and divert funds from planned projects. It’s important to understand that deferring maintenance of buildings does not make them unsafe. A building system may be overdue for replacement, but that does not mean that it is not operating at the level to which it was designed. Life safety is a top priority, and the University addresses safety issues on an ongoing basis to ensure buildings are safe for occupancy.
There could be a bit of good news for Carolina this year. Knuffman told the University Board of Trustees Finance, Infrastructure and Audit Committee in March that the state of North Carolina has recently revised its forecast for fiscal year 2021 to show a 15% increase in revenue due to a stronger-than-anticipated state economy. Knuffman said this situation could be conducive to some one-time funding for renovation and repairs for Carolina.
“Our goal is to have a steady stream of funds available for planning, renovation and renewal so we can systematically plan and implement projects to address the deficiencies over time,” Piran said.
